The Organization for Economic Cooperation and Development said Wednesday that it forecasts Greece's budget deficit to reach 1.6% of gross domestic product in 2004.

The OECD said its projections "do not embody any narrowing of the deficit in structural terms in the short run."

In October, the Greek government raised its 2003 and 2004 budget deficit targets to 1.4% and 1.2% of GDP, respectively, from earlier projections of 0.9% and 0.4%.

The government's 2004 budget is weighed down by costs for the 2004 Olympic Games and social-policy packages aimed at boosting the ruling party's profile ahead of general elections next spring.

Greece needs to persevere with fiscal consolidation, especially tighter control of government primary expenditure, to ensure the rapid reduction of the still high debt-to-GDP ratio, the OECD said.

The government expects public debt to be 101.7% of GDP in 2003 and 98.5% in 2004.

The country must boost long-term growth and competitiveness through "more decisive action to address labor market rigidities and to open up network industries to competition," the OECD said.

While Greek economic growth should remain robust, with real GDP growing by around 4% in 2004 on strong domestic demand and increased export activity, there is a risk of inflationary pressure, the OECD said.

"Given the strength of demand, there is a risk that inflation may fail to moderate, eroding longer-term competitiveness," the OECD said.

The Greek government forecasts inflation to average 3% in 2004, with the core inflation expected at 2.5%.